Electro-Sensors(ELSE) - 2019 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the unaudited condensed financial statements and management's discussion for Electro-Sensors, Inc Item 1. Financial Statements This section presents the unaudited condensed financial statements for Electro-Sensors, Inc. as of September 30, 2019, showing increased assets and net income Condensed Balance Sheets Total assets increased to $13.60 million from $13.28 million, driven by a rise in cash and cash equivalents Condensed Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,117 | $1,057 | | Investments | $5,786 | $7,742 | | Total current assets | $11,781 | $11,468 | | Total assets | $13,595 | $13,275 | | Liabilities & Equity | | | | Total current liabilities | $741 | $526 | | Total liabilities | $761 | $550 | | Total stockholders' equity | $12,834 | $12,725 | | Total liabilities and stockholders' equity | $13,595 | $13,275 | Condensed Statements of Comprehensive Income (Loss) Q3 2019 net sales decreased, but nine-month net sales increased 12%, resulting in a net income of $91 thousand Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $2,049 | $2,146 | $6,317 | $5,642 | | Gross profit | $1,074 | $1,195 | $3,376 | $3,083 | | Operating income (loss) | $(18) | $199 | $(16) | $(157) | | Net income (loss) | $19 | $187 | $91 | $(58) | | Diluted EPS | $0.01 | $0.06 | $0.03 | $(0.02) | Condensed Statements of Changes in Stockholders' Equity Stockholders' equity increased by $109 thousand for the nine months ended September 30, 2019, primarily due to net income - Stockholders' equity rose to $12,834 thousand as of September 30, 2019, up from $12,725 thousand at the end of 2018. This change was primarily due to net income of $91 thousand and $10 thousand in other comprehensive income[15] Condensed Statements of Cash Flows Cash from operating activities improved significantly, and net cash increased by $2.06 million, mainly from investing activities Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $210 | $(27) | | Net cash from investing activities | $1,854 | $67 | | Net cash used in financing activities | $(4) | $(150) | | Net increase (decrease) in cash | $2,060 | $(110) | | Cash and cash equivalents, ending | $3,117 | $853 | Notes to Condensed Financial Statements Notes detail accounting policies, revenue recognition, and investment classifications, including a new technology license acquisition - The company manufactures and sells monitoring and control systems for industrial machinery to customers in the US, Canada, Latin America, Europe, and Asia[21] - Revenue is recognized when control of the product transfers to the customer, typically upon shipment. For contracts with multiple performance obligations, price is allocated based on relative stand-alone selling prices[22] - On September 30, 2019, the company acquired a royalty-free, perpetual technology license for wireless communication technologies for $150 thousand[26] - The company's investments consist of commercial paper, Treasury Bills, and equity securities. As of September 30, 2019, the fair value of total investments was $5.79 million[34][38] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting increased sales and improved cash position, while addressing gross margin and expense changes Results of Operations Net sales increased 12% year-to-date driven by HazardPRO and international sales, despite a Q3 decline, while gross margin decreased Net Sales Performance (in thousands) | Period | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Q3 | $2,049 | $2,146 | $(97) | -4.5% | | 9 Months | $6,317 | $5,642 | $675 | 12.0% | - The year-to-date sales increase was primarily driven by increased sales of HazardPRO wireless monitoring systems. International sales grew by 51% for the nine-month period, mainly due to higher sales in Canada[50] - Gross margin decreased in both Q3 (55.7% to 52.4%) and the nine-month period (54.6% to 53.4%) primarily due to a change in product mix and higher material costs from government tariffs[51] - For the nine-month period, selling and marketing expenses increased 20.4% due to increased headcount and higher sales compensation. General and administrative expenses decreased 5.5% due to lower legal fees and compensation costs[52] Liquidity and Capital Resources Cash and cash equivalents significantly increased to $3.1 million, primarily from investing activities, with sufficient liquidity for the next 12 months - Cash and cash equivalents increased by $2.06 million during the first nine months of 2019, reaching $3.12 million[56] - Cash from operating activities was $210 thousand for the nine months of 2019, compared to a use of $27 thousand in the same period of 2018, an improvement of $237 thousand[57] - Cash from investing activities was $1.85 million, largely from net proceeds of $2.09 million from Treasury Bill maturities, offset by $234 thousand in purchases of property, equipment, and intangibles[58] - Management believes that cash on hand and cash generated from operations will be sufficient to meet cash requirements for at least the next 12 months[60] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that this section on market risk disclosures is not applicable - Not Applicable[64] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures with no material changes in internal controls - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2019[65] - No changes in the Company's internal control over financial reporting occurred during the third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, these controls[66] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and a list of filed exhibits Item 1. Legal Proceedings The company reports no ongoing legal proceedings - None[68] Item 1A. Risk Factors The company indicates that this section on risk factors is not applicable - Not Applicable[68] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds - None[68] Item 6. Exhibits This section lists the exhibits filed, including CEO/CFO certifications and iXBRL financial data - Exhibits filed include CEO/CFO certifications (31.1, 32.1) and iXBRL financial data (101)[68][69][70] Signatures The report was signed by the Chief Executive Officer and Chief Financial Officer on November 12, 2019 - The report was signed on November 12, 2019, by David L. Klenk, Chief Executive Officer and Chief Financial Officer[73]